Working Paper: NBER ID: w31158
Authors: Gilles Duranton; Jessie Handbury
Abstract: A key reason for the existence of cities are the externalities created when people cluster together in close proximity. During Covid, such interactions came with health risks and people found other ways to interact. We document how cities changed during Covid and consider how the persistence of new ways of interacting, particularly remote work, will shape the development of cities in the future. We first summarize evidence showing how residential and commercial prices and activity adjusted at different distances from dense city centers during and since the pandemic. We use a textbook monocentric city model to demonstrate that two adjustments associated with remote work—reduced commuting times and increased housing demand—generate the patterns observed in the data. We then consider how these effects might be magnified by changes in urban amenities and agglomeration forces, and what such forces might mean for the future of cities.
Keywords: COVID-19; cities; remote work; housing demand; urban economics
JEL Codes: R12; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| remote work (wfh) (J22) | increase in residential housing demand in suburban areas (R21) |
| commuting dividend (G35) | increase in residential housing demand in suburban areas (R21) |
| home-office tax (H26) | increase in residential housing demand in suburban areas (R21) |
| reduction in commuting costs (R48) | increase in residential housing demand in suburban areas (R21) |
| necessity for home office space (R21) | increase in residential housing demand in suburban areas (R21) |
| remote work (wfh) (J22) | increase in housing prices outside city centers (R31) |
| remote work (wfh) (J22) | decrease in housing prices in denser areas (R31) |
| decline in amenity value of downtown areas (R11) | increase in residential housing demand in suburban areas (R21) |
| remote work (wfh) (J22) | changes in household location decisions (R20) |
| remote work (wfh) (J22) | physical expansion of cities (R11) |
| remote work (wfh) (J22) | renaissance of downtown areas (R11) |